Review of the MCCA Direct Marketing Model Code of Practice Discussion Paper

2 Development of the Model Code

2.1 Consumer problems leading to development of the Model Code

The Direct Marketing Code was initially drafted in response to consumer concerns with direct marketing. These concerns had been the subject of much debate amongst the Ministerial Council on Consumer Affairs for some years prior to the implementation of the Code.

Direct marketing, and distance selling in particular, has many specific characteristics which cause it to differ from shop front retailing. The consumer's lack of opportunity to inspect goods prior to entering into the purchase contract, the fact that transactions are often initiated by the direct seller without the consumer's consent and that consumers may not have sufficient opportunity to research the goods and services that have been offered are most relevant or compare their quality or performance against similar products.

MCCA identified that consumer problems with direct marketing basically involve three areas:

• fair trading issues, including:

- information disclosure - for example, consumers may not always have the necessary information to make an informed decision, such as details of the price, payment mechanism, identity of the seller, etc; and

- cooling off periods - because consumers are unable to inspect a product before purchase when buying goods at a distance from the seller, they need the ability to return unsuitable goods;

• privacy issues, such as concerns about the use of personal information for mailing lists, the inability to prevent such use or to remove personal information from existing lists; and

• telemarketing, such as calling consumers at home at inconvenient times, and the use by telemarketers of silent numbers.

2.2 MCCA Model Code

In July 1993, the Ministerial Council on Consumer Affairs (MCCA) decided a working party should be established to review the sale of mailing lists. The review focussed principally on the practices associated with the compilation and use of lists of personal data and the potential for abuse without appropriate safeguards in place.

Having established appropriate practices, the working party looked at a number of options for ensuring that such practices were adopted. Options ranged from self-regulation and other voluntary and mandatory codes, to industry specific legislation. The working party envisaged that a code relating to the compilation and use of mailing lists would eventually become part of a comprehensive code setting standards for all direct marketing practices.

At its July 1994 meeting, MCCA directed the Standing Committee of Officials of Consumer Affairs (SCOCA) to identify the emerging issues in direct marketing and suggest appropriate options. Following the release of a discussion paper and submissions received from over fifty organisations, including direct marketers, banks, insurance companies, privacy organisations, charities and government departments and agencies, the SCOCA working group produced a report proposing solutions to some of the consumer problem areas in direct marketing.

The report recommended a Code of Practice be prepared by government, industry and consumers. In August 1995, MCCA directed that a Direct Marketing Code be prepared by a working group chaired by the Australian Competition and Consumer Commission (ACCC) and including industry, consumer and privacy representatives and State and Territory consumer affairs officials.

A draft Code was released for public comment in December 1996. Following the draft code, the final Model Code was released by MCCA in November 1997. The objective of the Model Code is `to enhance the potential for consumers to benefit from distance selling, and to improve the market for reputable business. It is also intended to prevent unreasonably intrusive forms of marketing by a variety of users of direct marketing techniques including distance sellers and fundraisers'.

The Model Code seeks to achieve its objective by:

• ensuring that consumers have access to the product and service information they need to make informed choices;

• promoting ethical sales practices and ensuring that fair trading principles are complied with;

• ensuring that consumers have access to appropriate returns policies, complaints procedures and remedies where there is a problem with a sale; and

• protecting consumers from unreasonably intrusive telemarketing practices.

2.2.1 Implementation of the Model Code

It was MCCA's intention that the provisions of the Model Code would be picked up by industry associations and implemented through their own codes. As the leading industry association in relation to direct marketing, ADMA has been the most explicit in its implementation of the Model Code. However, the provisions of the Model Code have also been implemented, at least in part, in codes developed by other industry associations.

2.3 ADMA Code

Subsequent to the finalisation of the Model Code, the Australian Direct Marketing Association developed its own code (the `ADMA Code') based on the provisions in the Model Code.

The ADMA Code applies to ADMA members and all employees, agents and subcontractors of ADMA members. The Code also requires that ADMA members ensure their suppliers become familiar with the code and the compliance obligations of members.

Like the Model Code, the ADMA Code contains a similar statement of objectives. The objectives of the ADMA Code are to:

• ensure customers have access to the product and service information they need to make informed choices;

• minimise the risk of direct marketers breaching the Trade Practices Act or state fair trading legislation;

• promote a culture among direct marketers of conducting their businesses fairly, honestly, ethically and in accordance with best practices; and

• increase consumer confidence in doing business with ADMA members.

It is not intended here to describe the provisions of the ADMA Code in great detail. A copy of the ADMA Code can be obtained at www.adma.com.au. However, broadly the ADMA Code is divided into standards of fair conduct (Part B), fair conduct relevant to telemarketing (Part C), fair conduct relevant to electronic commerce (Part D), fair conduct relevant to consumer data protection (Part E) and enforcement (Part F).

While the ADMA Code is based on the Model Code, it does differ in some respects. It draws on various other sources to complement the provisions of the Model Code in respect of areas the Model Code does not address, particularly in relation to electronic commerce and privacy.

2.3.1 Effects on competition of the ADMA Code and ACCC authorisation

Following development of the ADMA Code, ADMA applied to the ACCC for authorisation under section 88(1) to make a contract or arrangement a provision of which would have the purpose of substantially lessening competition.

When determining whether to authorise the Code, the ACCC considered whether the Code's provisions were likely to result in a public benefit and if that benefit outweighed the public detriment of any lessening of competition which followed from giving effect to the Code.

It was agreed that the ADMA Code has the potential for anti-competitive detriment. This anti-competitive detriment arises in the following ways:

• the conduct of ADMA members is restricted beyond that required by law, that is, the Code requirements are prescriptive and have the potential to standardise the way in which participants in the direct marketing industry conduct their business and that such standardisation may limit the opportunities for ADMA members to differentiate their businesses from one another; and

• the imposition of sanctions (including the revocation of membership of ADMA) where a member is found to be in breach of the Code may mean that the excluded (former) member suffers detriment as a result of potential customers and/or other ADMA members refusing to deal with a person who is not an ADMA member, and the person being denied access to the advocacy, education and networking activities conducted by ADMA.

However, as to the prescriptiveness of the Code requirements, the ACCC decided that those requirements did not go beyond what is widely accepted as prudent and fair business practices. Direct marketing participants would retain scope to differentiate themselves via their products and the type of technology used to contact potential customers to transact a sale.

The ACCC determined that the Code has the potential to give rise to a number of public benefits in the form of:

• promotion and enhancement of consumer protection by ensuring customers have access to information, respecting privacy, promoting a culture of fair conduct among direct marketers and protecting consumers from false, misleading or unsafe claims;

• ensuring ADMA members put in place appropriate consumer complaint handling procedures;

• promotion of consumer confidence in dealing with direct marketers; and

• consideration of consumer views through the presence of consumer representatives on the Code Authority.

The ACCC ordered a number of amendments to the code submitted by ADMA and, subject to those amendments, the ACCC concluded that the Code is likely to result in a benefit to the public and that the benefit outweighs the detriment to the public by any lessening of competition that is likely to result from giving effect to the Code. Consequently, on 16 August 1999, the ACCC granted authorisation of the ADMA Code. The ACCC authorisation will remain valid until 16 August 2003. A copy of the ACCC authorisation is available at www.accc.gov.au/pubreg/s89_95/1998a.htm.

However, the authorisation is subject to additional conditions that require ADMA to keep its Code up to date with regulatory developments (for example, amendments to the Direct Marketing Model Code, the OECD Guidelines for Consumer Protection in the context of Electronic Commerce, and the National Privacy Principles) on which the ADMA Code is based.

Discussion Points 1. What has been the impact of the Model Code on direct marketing practices? 2. To what extent have the objectives of the Model Code been achieved? 3. To what extent have industry associations adopted the provisions of the Model Code, and what proportion of direct marketers in the relevant industry sectors do they represent? 4. What approaches have industry associations taken to implement the provisions of the Model Code? 5. To what extent has the adoption of the various provisions of the Model Code impacted on the practices and competitive advantage of ADMA members?

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